The Arizona REALTORS® Residential Resale Purchase Contract – Remedies Section

This is Part 8 of a series of articles discussing the major provisions in each of the sections of the Arizona REALTORS® Residential Resale Real Estate Purchase Contract (10/22) (“Contract”). 

The previous articles in this series can be located at Arizona Real Estate – A Professional’s Guide to Law & Practice. (arizonarealestateprofessionalguide.blogspot.com)

The Remedies Section of the Contract contains provisions that most people hope they will never have to utilize.  However, if there is a potential breach of contract, it is important to understand each party’s rights and obligations.  If there is a breach of contract, the rights and remedies are set forth in this section of the Contract, however if there is a breach, the broker should be notified and the parties should generally be referred to independent legal counsel. 

REMEDIES SECTION

Cure Period

A party is given an opportunity to cure a noncompliance or potential breach of the contract. If a party fails to comply with any provision of the Contract, the other party must deliver a notice to the non-complying party specifying the non-compliance before declaring a breach. If the non-compliance is not cured within three days after delivery of the notice (cure period), the failure to comply may be declared to be a breach of contract.

• The Arizona REALTORS® Cure Period Notice form is available to assist the parties with delivering notice of a potential breach. 

• The Cure Period applies when a party does or does not do something that would have otherwise been an immediate breach of contract. The cure notice provides an opportunity to fix a problem before it becomes a breach, so it is an excellent risk management provision. 
  • A breach of contract is the failure to perform a contractual duty, or in other words, a broken promise.
  • There are no automatic breaches in the Contract. The Cure Period Notice is always a prerequisite to declaring a breach of contract.
  • There are situations where the Cure Period Notice could delay COE.  For example, if, on the day of COE, the buyer discovers that the seller has failed to complete an agreed upon repair or a party fails to perform on the COE date.

• The cure period does not apply to a contingency.
  • A contingency is an event that must occur before a party is obligated to perform their obligations set forth in the Contract. A contingency is a condition, not a promise. If a contingency does not occur, the party’s obligation to perform the contract never arises, so the failure to perform a contingency is not a breach. If a contingency does not occur, the Contract is unenforceable.
  • For example, the cure period does not apply to the loan contingency.  The Contract is contingent upon the buyer obtaining loan approval without conditions, in other words qualifying for a loan, by the COE Date. If the buyer in good faith fails to obtain loan approval, or qualify for a loan, by the COE Date, the buyer’s obligation to perform the Contract never arises. In such a case, the Contract is unenforceable the next day, and the buyer is automatically entitled to the return of the earnest money without further action by either party.
    
• The Cure Period was included in the Contract for a variety of reasons, including:
  • Dealing with all failures to comply with the terms of the Contract in a uniform manner and prompting compliance.
  • Eliminating the question of whether a breach has been waived — because an action or inaction is not a breach until the non-complying party is given notice and an opportunity to perform.
  • Bolstering the enforcement of the time is of the essence clause and the ability to cancel the Contract for a breach.

Breach

As discussed above, if after receiving the notice of noncompliance the party does not perform the specified obligation, the non-complying party may be declared in breach of contract. In that event, the non-breaching party may pursue all legal remedies, subject to the Alternative Dispute Resolution obligations set forth in the Contract.

• The remedies for a breach of contract may include forfeiture of the earnest money (liquidated damages), actual damages (money to remedy the breach), forfeiture of the Contract (cancellation), or specific performance (forcing the breaching party to perform).
• In the event of buyer’s breach, the seller may accept the earnest money as the sole right to damages.
• In the event of buyer’s breach arising from the failure to deliver the notice of the inability to obtain loan approval or the inability to obtain loan approval due to the waiver of the appraisal contingency, the seller agrees to accept the earnest money as the sole right to damages.

This provision also states the obvious: an unfulfilled contingency is not a breach of contract.

Finally, the parties expressly agree that the failure of any party to comply with the terms and conditions of Section 1d to allow COE to occur on the COE Date, if not cured after a Cure Period notice is delivered pursuant to Section 7a, will constitute a material breach of the Contract, rendering the Contract subject to cancellation.

Alternative Dispute Resolution (ADR) – Mediation and Arbitration

The buyer and seller agree to mediate any dispute or claim arising out of or relating to the Contract, and all mediation costs will be paid equally. If mediation does not resolve the dispute, the unresolved dispute must be submitted to binding arbitration unless either party opts out within 30 days after the conclusion of the mediation conference by notice to the other. If a party opts out of arbitration, either party has the right to resort to court action.

• The parties may utilize the Arizona REALTORS® Buyer-Seller Dispute program to initiate mediation or arbitration.   Buyer-Seller Disputes | Arizona Association of REALTORS® (aaronline.com)

• Mediation is a process in which the parties meet with an impartial person who helps to resolve the dispute informally and confidentially. Agreeing to mediate does not mean that the parties are agreeing to settle, but simply means the parties are trying to resolve a dispute without going to court. The parties do not give up any right to pursue other legal remedies if mediation is not successful.

• Arbitration is a process that is similar to court litigation but is generally quicker and more cost effective. Pursuant to the Contract, if mediation does not resolve the dispute, the unresolved dispute must be submitted to binding arbitration, unless either party opts out within 30 days after the conclusion of the mediation conference by written notice to the other.

Exclusions from ADR

The following matters are excluded from the requirement for mediation and arbitration:

• any action brought in the Small Claims Division of an Arizona Justice Court (up to $3,500);
  • In Small Claims Court the case will be heard by either a judge or hearing officer, who then makes a decision that is final.  https://www.azcourts.gov/selfservicecenter/Small-Claims
• judicial or nonjudicial foreclosure or other action or proceeding to enforce a deed of trust, mortgage, or agreement for sale;
• an unlawful entry or detainer action;
• the filing or enforcement of a mechanics lien; or
• any matter that is within the jurisdiction of a probate court.

The filing of a judicial action to record a lis pendens or order of attachment, receivership, injunction, or other provisional remedies is not a waiver of the obligation to submit the claim to alternative dispute resolution, or a breach of the duty to mediate or arbitrate.

Attorneys’ Fees and Costs

The prevailing party in any dispute is entitled to an award of their reasonable attorneys’ fees and costs.

Conclusion

Most real estate transactions are completed without dispute. However, there are times when a buyer or seller refuses to comply with the Contract and perform a contractual duty, such as a refusal to close escrow or to make agreed upon repairs.  Although you cannot give legal advice (unless you are also an attorney and authorized to act in that capacity), it is important to know the options so you can point your client in the right direction. 

Next Article – Additional Terms and Conditions & Seller Acceptance

K. Michelle Lind, Esq. is an attorney who currently serves Of Counsel to the Arizona REALTORS®.  She is also the author of the book – Arizona Real Estate: A Professional’s Guide to Law and Practice (3rd Ed.) . 

For more real estate related articles, visit Michelle’s Blog at Arizona Real Estate – A Professional’s Guide to Law & Practice. (arizonarealestateprofessionalguide.blogspot.com) This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel. 4/23/23